GE: Insourcing is the Next Big Thing

General Electric (NYSE:GE) is quietly overseeing the beginning of a transformation in U.S. manufacturing. Since the days of deep recession, when Chief Executive Officer Jeff Immelt attempted to sell the company’s six-building factory complex known as Appliance Park, both its business and its employees have returned to revive operations.

In 2012, Immelt invested $800 million in the Louisville, Kentucky-based factories with the goal of bringing its appliance-manufacturing business back to the United States. As a result, the company built its first new assembly line in 55 years and increased the number of hourly workers by 90 percent in a single year.

Even as recently as last year, Appliance Park was a different place; the factory employed only 1,863 workers in 2011, as compared to 16,000 in 1955 and 23,000 in 1973, leaving many of its shopping-mall sized factory buildings irrelevant. However, as Charles Fishman wrote in the December issue of the Atlantic, “something curious and hopeful has begun to happen, something that cannot be explained merely by the ebbing of the Great Recession, and with it the cyclical return of recently laid-off workers.”

What has happened is a revival. This March, Immelt declared in the Harvard Business Review that outsourcing is “quickly becoming mostly outdated as a business model for GE Appliances.” Fishman agreed. In his opinion, the Vernon product cycle, which was developed by Harvard economist Raymond Vernon in the 1960s, could be changing. Until recently, intensifying competition and high labor costs have made the United States a poor candidate for manufacturing investments. However, Fishman now argues that “the curvature of Vernon’s product cycle may be changing once again, this time in a way that might benefit U.S. industry, and the U.S. economy, quite substantially in the years to come.”